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Is a High-Yield Checking Account Right for You?

For most people, having a checking account is a must when it comes to day-to-day financial transactions. And considering that most of us have money sitting in one all the time, wouldn’t it be great if you could earn interest on the money in your checking account? Well, you can — with a high-yield checking account.

Similar to high-yield savings accounts and certificates of deposit, a high-yield checking account allows you to earn interest on your money. Before you opt to go with an interest bearing checking account, however, there are a few requirements and restrictions to consider.

One important thing to note about high-interest checking accounts is their minimum balance requirement. For some banks, the requirement can be satisfied across multiple accounts (checking, savings, money market); others require the money to be deposited only in your checking account. Balance requirements vary, but they tend to be at least a few thousand dollars. Bank of America, for example, requires a $10,000 combined balance, whereas Wells Fargo’s is $25,000. Fail to meet this balance threshold and you could be on the hook for a monthly fee, which runs about $25.

Additionally, it’s necessary that you understand how these interest-earning accounts actually accrue interest. If your bank offers you 2% APY, you’re probably not going to earn the amount on your entire balance. Why? Most high-interest checking accounts have balance caps, meaning all your money doesn’t grow at the same rate. And the opportunity to earn interest is diminishing: Last year, a Bankrate survey found that the average balance cap fell from $19,118 in 2012 to $17,102 in 2013.

Other important caveats to note about these accounts: You may need to use your debit card a certain number of times each month and receive electronic statements, as opposed to paper ones. Plus, you might have to sign up for direct deposit of your paycheck as well.

Ultimately, it’s important to base your decision on whether or not you can meet the minimum account requirements. If you can, a high-yield checking account could be a great move financially.  But if you’re going to have trouble using your ATM card frequently or meeting the minimum balance requirements, then this account is probably going to cost you money to maintain.

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